Q. I am 71, single and just retired. I have $480,000 in my 401(k) and $190,000 in a money market savings account. I downsized, selling my home and paying cash for a new one in a 55-and-over community. My total monthly income from Social Security and small pension is $2,300. Should I roll my 401(k) into an IRA? I’m not financially savvy and I don’t have a financial advisor, but I do pay a fee for the administrators of my 401(k) plan to monitor my account. What should I do?
A. We hope retirement will be an exciting time for you!
There are many possible benefits to rolling over a 401(k) to an IRA.
For starters, your 401(k) probably has limited investment options, such as a list of mutual funds, said Jody D’Agostini, a certified financial planner with AXA Advisors/The Falcon Financial Group in Morristown
“With an IRA, most types of investments are available inclusive of individual stocks, exchange-traded funds (ETFs), real estate investment trusts (REITs) and more,” she said. “You should assess that your new asset allocation has at least as good returns as well as comparable fees.”
If you have changed jobs frequently, you may have a long list of 401(k)s.
For simplicity sake, and to be sure that your asset allocation is managed according to your risk tolerance, you might want to collect them all into one managed IRA, D’Agostini said.
“Since you are 71, you now need to begin taking Required Minimum Distributions,” she said. “The IRS requires that these begin in the year you turn 70 1/2, so you may be overdue depending upon your birthdate.”
D’Agostini said there are penalties for not taking out enough each year – up to 50 percent of the amount that should have been withdrawn. Some 401(k) plans only allow for scheduled withdrawals or have certain requirements, while IRAs may offer more flexibility in withdrawal options, she said, so look carefully at your particular situation.
Also depending on where you stand financially, you could have other options.
The rollover from a 401(k) to an IRA is a tax free transfer, but you also consider rolling all or part of the 401(k) into a Roth IRA, which would give you tax-free withdrawals in the future. This isn’t a move to take lightly, though.
“You would need to pay the income taxes on that amount, but you now have an account which grows income tax-free and can be utilized income tax-free in the future,” she said.
What to do with your 401(k) is an important decision, so it sounds like you could benefit from a meeting with an objective financial advisor who can look at your entire situation and advise you on the best steps to take.
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